American Airlines boss Gerard Arpey has turned on his own government's bankruptcy protection law, which, he says, distorts competition and keeps ailing carriers in business.

His remarks, which echo longstanding criticism from BA, come at a time when American and BA are seeking to forge stronger ties.

Speaking from American Airline's headquarters at Fort Worth, Texas, Arpey tore into the way rival US airlines exploit Chapter 11 bankruptcy protection, saying: 'Under Chapter 11, companies can legally renege on their commitments to repay money or meet the terms of their contracts, so they can produce immediate cost savings and create a cost structure that can be difficult to compete with. Chapter 11 is used to perpetuate capacity that has failed.'

BA chairman Martin Broughton said recently that he wanted EU trade commissioner Peter Mandelson to look into the way Chapter 11 operates. He believes the process creates a false market in aviation. American is the only one of the 'big five' conventional US carriers that has stayed out of Chapter 11 since the slump that followed the 11 September terrorist attacks and the hike in oil prices.

Arpey's competitors have used Chapter 11 to wipe out billions of dollars of pensions liabilities.

Congress is unlikely to reform Chapter 11, although US politicians have raised concerns about the way the procedure works. The topic is part of a wider discussion by regulators and governments on both sides of the Atlantic about what constitutes market liberalisation.

Unless Washington and Brussels can reach an 'open skies' agreement, BA and American's dream of forging a stronger partnership - even one limited to profit-sharing on lucrative transatlantic routes in and out of Heathrow - is unlikely to come to anything. BA recently attacked the US for failing to make legislative changes to allow foreign ownership or control of US airlines.

Arpey said he would like 'a deeper and more wide-ranging alliance' with BA. He said: 'Often, when industries have financial constraints and the market is drenched with capacity, the problem can be addressed by consolidation.'

One industry observer said: 'His is a game of brinkmanship in which Brussels and Washington attempt to gauge what the other is prepared to give up as a quid pro quo to clinch an agreement.'

BA and American are partners in the OneWorld alliance, but this is confined to areas such as joint-ticketing arrangements and sharing airport lounges.